Melewar Steel Ventures Ltd v ANZ Nominees Ltd [2008] NSWSC 295 | Case summary

This is an application by the plaintiff, Melewar Steel Ventures Limited, for an extension of the injunction granted ex parté this morning against the defendants restraining them from disposing of, or otherwise dealing with, the shares identified in certain Collateral Lodgement Forms as between the plaintiff and the second defendant, Opes Prime Stockbroking Limited (Receivers, Managers Appointed) (Administrators Appointed) (Opes). The shares the subject of those documents are in a company known as Gindalbie Metals Limited (Gindalbie), a public company listed on the Australian Securities Exchange. The urgent ex parte application this morning at 9.15 was prompted by the plaintiff's anticipation that the first defendant (ANZ Nominees Ltd) (Nominees) or the third defendant (Australia and New Zealand Banking Group Ltd) (the Bank) would deal with the shares when the market opened in Sydney at 10am this morning, there having been a 48 hour Halt on the trading of those shares. The plaintiff is a steel manufacturing company trading in Malaysia, but having assets in Australia. On 9 October 2007 Opes offered equity financing to the plaintiff on the basis that the plaintiff would progressively pledge securities of up to 30 million shares to Opes for a progressive notional drawdown of AU$24 million as securities were pledged. The minimum term of that arrangement was to be "none"; however, three days notice was required before repayment. The maximum term offered was 11 months and 20 days, with the option to roll over for an additional 11 months and 20 days. The interest rate was the RBA cash rate, plus 1.75% per annum variable. The documentation that was said to be required for the arrangement was the Global Master Securities Lending Agreement between the plaintiff and Opes (the Agreement). The position was to be monitored on a daily basis with margin calls being able to be made to ensure that the LvR (50%) remained constant over the duration of the transaction. Margin payments would be in Australian dollars or main index securities, other than GBG, once the quantity of GBG's securities held reached 70 million units in total. Opes promised to provide settlement details once it received confirmation from the plaintiff that it wished to proceed with the financing arrangement and requested the plaintiff to sign the Agreement in duplicate so that any loan draw down on pledging of securities could occur. It is not clear from the evidence on what date the plaintiff signed the Agreement, however, it is clear that the first "pledging" occurred on 11 October 2007. The agreement contains a number of important clauses including the following: 4.2 Requirements to effect delivery The parties shall execute and deliver all necessary documents and give all necessary instructions to procure that all right, title and interest in: (a) any Securities borrowed pursuant to paragraph 3; (b) any Equivalent Securities redelivered pursuant to paragraph 8; (c) any Collateral delivered pursuant to paragraph 5; (d) any Equivalent Collateral redelivered pursuant to paragraphs 5 or 8;

The investor retains beneficial and economic ownership of the lent stock including full exposure to dividends and corporate actions as well as to market risk. The transaction may be reversed at any time. That statement on the web page is not reflected in the agreement. Indeed, as can be seen from clause 4.2 set out above, the agreement seems quite to the contrary. There are a series of Collateral Lodgment Forms in evidence whereby approximately 32 million Gindalbie shares were transferred from the plaintiff to Opes between October 2007 and 5 March 2008. Although there is no real evidence of the relationship between Nominees, or the Bank and Opes, it is apparent that Nominees and the Bank, or one of them, made arrangements with Opes to loan Opes moneys on security of stock including, it appears, the shares that the plaintiff transferred to Opes. The true arrangements will no doubt have to be the subject of evidence in due course. The plaintiff does have some evidence which has been described by Mr Newlinds, senior counsel for Nominees and the Bank, as not very reliable evidence. It is a document headed "Gindalbie Metals Limited Detailed Worksheets". It is said to be some form of register of the shareholding in Gindalbie, including the identity registered holder, the intermediary and the beneficial holder and the number of shares held as at a particular date. What appears in that document, which the plaintiff claims is a document required to be kept pursuant to 671 B of the Corporations Act (the 671B document), is a statement that as at 8 January 2008 Nominees held 19 million shares in Gindalbie, the intermediary being identified as Opes and the beneficial owner being identified as the plaintiff. Mr Newlinds' instructions are that the appropriate defendant is the Bank, which now purports to be entitled to deal with the shares, or some of them, that were transferred to Opes and are apparently now the subject of an arrangement between Opes and the Bank. It is also the case that the Bank has instructed Mr Newlinds that it now only holds 8.5 million of the shares the subject of the evidence before me today. That will no doubt be the subject of evidence in due course and will be clarified. Although those instructions are prima facie inconsistent with the 671B document, events may well have overtaken the contents of that document. The plaintiff also relies upon a statement made by Gindalbie to the Australian Securities Exchange on Monday, 31 March 2008 in which it recorded that it had been informed by the plaintiff, "a substantial shareholder", that a portion of the plaintiff's shareholding is "subject to an equity finance contract with Opes Prime Stockbroking" and that Gindalbie was seeking clarification of the plaintiff's position in relation to that shareholding. It was in those circumstances that Gindalbie sought the Halt from the ASX in respect of the trading of its shares. The plaintiff sought an undertaking from the Bank that it would not deal with the shares. The Bank was not prepared to give an undertaking and advised that it considered itself free to deal with the shares in its name. It was therefore necessary for the plaintiff to approach the Court on an urgent basis prior to business hours this morning to ensure that the Bank did not trade the shares. It appeared to me this morning that there was a serious issue to be tried in respect of the material that was available to me at that stage on an ex parte basis and I granted an injunction to 4pm today. The plaintiff seeks an order extending that injunction. The plaintiff owes Opes approximately $11.15 million pursuant to the arrangements between them. The Agreement is not a straightforward document and it would appear that the parties intended that there may well be other agreements entered into to reflect the parties intentions in respect of each of the draw downs or loans that would occur between the plaintiff and Opes. The plaintiff seeks rectification of the Agreement to reflect what it claims was the intention of the parties, or its intention at the very least, that it would retain beneficial and economic ownership of the lent stock, including as I have already referred to above, full exposure to dividends and corporate actions as well as market risk and a condition that the transaction may be reversed at any time. The plaintiff relies upon the 671B document in support of its claim that it retained the beneficial ownership of the shares. The plaintiff seeks to have the rectified Agreement declared enforceable as against the Bank and at this stage relies upon the 671B document to submit that the Bank entered into the arrangement with Opes knowing that the plaintiff was the beneficial owner of the shares. Prime facie, the plaintiff is entitled to rely upon that document to support its case, both as against Opes and against the Bank and Nominees. Mr Newlinds has submitted there is no serious issue to be tried. I disagree. On the material before me it does appear that there were arrangements between the plaintiff and Opes whereby Opes may be entitled to retain the beneficial ownership of the lent stock. It is always difficult at this very early and urgent stage to make an assessment of the true merits and strengths of such a case. Mr Newlinds submits I should find it is a weak case. I do not need to make that finding today. I am of the view that there is a serious issue to be tried in the rectification suit. I am also of the view that there is a serious issue to be tried as against the Bank having regard to the document in which Nominees is listed as a shareholder with the intermediary as Opes and the beneficial owner as the plaintiff. However, once evidence is on, things may be different. I certainly do not agree with Mr Newlinds' submission that the case would appear at this stage to be "hopeless". Mr Newlinds also makes the point that since the adoption of the CHESS system on the Australian Securities Exchange, it is not possible to identify these shares and therefore the injunction should not run. Mr V Gray, for the plaintiff, likened the position to that in Re Hallett's Estate; Knatchbull v Hallett (1879) 13 Ch D 696. In that case Henry Hughes Hallett, a solicitor, accepted monies from a client and used those monies to purchase Russian bonds. Prior to his death Mr Hallett improperly sold the bonds and placed the proceeds in his general account. The proceeds from the bonds remained mixed with his own money at the time of his death. Jessel MR referred to the doctrine of Equity whereby the beneficial owner is able to take the proceeds of the sale if the proceeds can be identified (at 708-709). Mr Gray submitted that this is not a dissimilar situation, however I apprehend that he would say it is a much stronger situation by reason of the documentary trail that would be available to identify and trace these shares. Mr Newlinds made what appeared to be a very attractive submission in respect of damages being an adequate remedy. Mr Gray responded with the submission that the shares in Gindalbie are of a "special" and "unique" value to the plaintiff because there is a vertical supply relationship in place and the plaintiff would place more worth on the shares than the usual "investor". The question may be asked as to why then that special or unique value could not also be the subject of valuation on a damages claim. However at the moment the novelty of that submission cannot be explored in detail having regard to the present status of the evidence. These submissions also go to the balance of convenience. I am satisfied that there is a serious issue to be tried in respect of the plaintiff's case against Opes and the plaintiff's case against the Bank and Nominees. Mr Robb, of Queens Counsel, who appears for Opes has indicated that his client does not wish to make any submissions in respect of the injunctive aspect of the case because his client is not in a position to control and/or deal with the shares. They are his instructions and there is no particular evidence before me of the detailed position of the parties' capacity to deal with the shares. I am dealing very much in an urgent situation where parties have done their best to inform the Court of the instructions from their clients. Having been satisfied that there is a serious issue to be tried I now turn to the balance of convenience. Mr Newlinds has indicated from the Bar Table that there are proceedings before Finkelstein J in the Federal Court of Australia, Victorian Registry, between other parties and the Bank relating to shares that were the subject of what might be called "similar arrangements" between those investor applicants and Opes. Mr Newlinds has indicated that his client wishes to make an application to transfer or cross-vest these proceedings to the Federal Court in Victoria. He submitted that it would be appropriate to do that immediately having regard to the fact that Finkelstein J is hearing an application tomorrow morning at 9.30. I am not in a position to make an assessment of the similarity of those proceedings with these proceedings. If they are similar proceedings with similar facts and similar issues, prima facie, it would be appropriate to cross-vest these proceedings with those. I say that without suggesting that I have formed a view one way or the other. I am satisfied that the balance of convenience favours the extension of the restraining order for a short period of time to enable the parties to investigate the position further. I should say something about an open offer that has been made by the plaintiff. The plaintiff has indicated that if on reasonable notice, in the event that a demand were made for it to repay the $11.15 million presently owed to Opes, it would pay such amount within a reasonable time frame on the basis that it would have access to the shares that were transferred. It would appear to me that the plaintiff may require access to the shares prior to the payment of $11.5 million, although that is not clear. I had considered the prospect of requiring the plaintiff to pay into Court the $11.5 million as a condition of the injunction. It may be that such an order is appropriate if the plaintiff seeks an extension of the injunction that I am about to grant. The shortness of time that I intend to allow for the injunction to continue is because I am not sure that damages are not an adequate remedy. Mr Gray's submission in respect of this unique value with this vertical supply relationship is a novel one and the market is at times a most difficult thing to read and at times even if read, is a most difficult thing to understand. This is a complex case and for the purposes of ensuring there is no prejudice to any party I intend to grant the injunction for one week. Accordingly I make the following orders: 1. Upon the plaintiff through its counsel giving the usual undertaking as to damages I order that the defendants be restrained until 4pm on 10 April 2008 from disposing of or otherwise dealing with the shares identified in the SRN Collateral Lodgment Forms dated 11 October 2007, 26 November 2007, 31 December 2007, 10 January 2008, 16 January 2008, 21 January 2008 and 5 March 2008, copies of which are contained at tab 5 of exhibit SL1 to the affidavit of Steven Lewis sworn 1 April 2008. 2. I grant leave to the first and third defendants to make application to transfer or cross-vest these proceedings to the Federal Court of Australia in Melbourne. Such application is to be made by Notice of Motion together with supporting affidavit material to be filed and served by no later than 10 April 2008. 3. The motion for transfer will be returnable before the Duty Judge at 10am on 10 April 2008. 4. I list the matter before the Duty Judge (general equity list) at 10am on 10 April 2008. 5. I grant liberty to approach the Duty Judge on one hour's notice. 6. Costs of today are reserved. 7. I grant the parties leave to issue subpoenas on short service returnable before the Registrar on 8 April 2008. 8. I grant the parties leave to issue notices to produce returnable before the Registrar at 9am on 8 April 2008. oOo

Melewar Steel Ventures Ltd v ANZ Nominees Ltd

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Judgment (14 paragraphs)

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